The world’s largest, most sophisticated investors are turning to gold…

These fundamentals are leading to broad based global demand for gold – from retail investors to institutions and pension funds. Japanese pension funds are increasingly looking at gold according to an article in the Wall Street Journal this morning.

Diversification into gold is taking place in order to protect against sovereign risk, debasement of currency risk and inflation risk.

In March 2012, Okayama Metal & Machinery became the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Okayama manages pension funds for about 260 small and mid-sized companies in the Okayama area.

“By diversifying currencies, we aim to reduce risks associated with them,” said Yoshi Kiguchi, the fund’s chief investment officer. “Yields become stable if you put small amounts into as many types of holdings as possible.”

Of its 40 billion yen ($477 million) in assets, the fund has invested around ¥500 million-¥600 million in gold, he said.

Initially, the fund aims to keep about 1.5% of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to “escape sovereign risk”.

Other pension funds in Japan are following their lead according to the Wall Street Journal.

Japanese pension funds are diversifying into gold “largely to mitigate the damage from possible market shocks”.

Japanese pension funds invest mainly in domestic stocks and bonds. Until recently, none have looked to gold or other physical assets.

Gold, whose price movement isn’t historically correlated with those of stocks or bonds, can protect portfolios from being damaged too badly in times of market stress, investment managers say. Low interest rates also justify holding non-yielding gold in place of cash.

Gold is also used as a hedge against inflation, which is becoming a bigger concern as global central banks buy ever-more bonds, market watchers say.

Even a small allocation by pension funds internationally to gold would result in a significant new source of demand which could be a new fundamental factor which propels prices higher in the coming years.

The US dollar is starting to fall against world currencies as investors anticipate more stimulus by the Federal Reserve.

The dollar weakened against most of its major counterparts today amid bets the U.S. central bank will add to monetary stimulus. The U.S. currency fell versus the euro and the yen before the Federal Reserve starts a policy meeting tomorrow amid forecasts it will expand bond-buying plans.

“People are looking ahead to the Federal Reserve this week, which should be an event that is positive for risk and negative for the dollar,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, told Bloomberg News this afternoon.

The U.S. currency declined versus 10 of its 16 most-traded counterparts.

The U.S. Federal Open Market Committee meets for the last time this year on Dec. 11-12. It will consider whether to expand purchases of assets after its so-called Operation Twist program of swapping $45 billion a month in short-term Treasuries for long-term debt expires this month.

“There’s a good chance that the Fed will announce a new round of money printing and bond buying,” which would be negative for the dollar, said Imre Speizer, a strategist in New Zealand atWestpac Banking Corp. (WBC).

Not surprisingly, the weakness in the dollar pushed gold higher. Spot gold was last quoted up $8.00 per ounce to $1,713.00.

Gold tends to move higher on a weaker dollar for two reasons:

1. Gold is priced in dollars, so a weaker dollar naturally pushes up the price of gold in dollars.

2. Gold is considered a main rival to the dollar as the world’s reserve currency, therefore, when confidence in the dollar wanes, demand for gold tends to rise.

It’s disheartening for investors to hear that the two political parties are so far apart with this unprecedented set of circumstances set to converge in just one month’s time.

This is certainly no laughing matter for investors. Not only might large amounts of our wealth be taken away by higher tax rates and closures of so-called tax “loopholes,” but we are also threatened by fiscal policies that could continue the devaluation of the US dollar and even accelerate what many see as inevitable high inflation. What may be even worse is that the impact could send the US economy into another recession in the process.

That combination of recession and high inflation is called “stagflation,” a phenomenon that we have written about from time to time. The last time the US was inflicted with serious stagflation in the mid-1970s, the stock market fell 45% in 21 months, the price of gold tripled and a broad index of rare coins appreciated by some 1,000%

The price of gold rebounded today headed into election day tomorrow. Spot gold rose $8.00 per ounce to $1685 as bargain hunters took advantage of Friday’s sharp correction to pick up gold at low prices.

Speaking of the election, now is as good of a time as any to remind investors that no matter who wins tomorrow, the US still has a $17 trillion debt and an economy that has been stuck in the doldrums for 5 years. Moreover, we have still come off of years of negative real interest rates, a scenario that eventually should energize the bull market in gold once again.

Who ever the president is the next 4 years, we can all wish him the best, but we must all take action to safeguard our wealth and, given the circumstances, gold is best positioned to to that.

Now the mainstream media has finally caught on. Reuters is warning of tough times for Americans in 2013 due to higher prices for many items. In other words, higher inflation is on its way:

Consumers will have to dig deeper into their pockets next year to pay for costlier healthcare, more expensive grocery bills and higher taxes, an extra drag on the country’s already slow-moving economy.

Rises in the prices of corn and soybeans and other field crops as a result of drought this year in the U.S. Midwest are expected to feed through into food prices late this year and in early 2013.

U.S. soybean prices jumped 40 percent over the summer, while wheat shot up about 50 percent. Prices have eased a bit since then, but the increases are expected to filter down to consumers.

The arrival of higher inflation also has serious implications for investors. Historically, periods of high inflation have been unfriendly for the stock and bond markets. On the other hand, gold investments tend to lead the way during periods of high inflation. This is true of a broad array of gold investments, not just gold bullion.

For example, rare gold coins tend to outperform gold bullion due to their added scarcity. They also offer security and privacy advantages over other forms of gold investment.

The general consensus for quite some time in the US has been that inflation has not been a factor in the US economy.

But there is a substantial amount of evidence to indicate that inflation DOES exist in the US economy and has existed for some time. However, government agencies and big Wall Street insiders find inflation to be an inconvenient fact–so they cover it up.

The federal government manipulates and fudges the inflation measures to underreport inflation and Wall Street then parrots the government statistics to their own purpose. You see, historically, high inflation has been decidedly unfriendly for the stock market, so Wall Street has a vested interest in low inflation. High inflation is, of course, very positive for gold investments.

What’s the federal government’s angle? There are several. First of all, high inflation doesn’t help incumbents get re-elected. Second of all, high inflation gets in the way of the Federal Reserve‘s scheming…

There is a great deal of evidence that inflation DOES exist and has existed over the past decade. The report linked below provides evidence of rising price levels, despite the government statistics to the contrary…